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UK referendum: Price of reliable crystal balls soars

30 Jun 2016

In the wake of the UK’s vote to leave the European Union (EU), there are many people trying to understand what it means for the future. The demand for reliable crystal balls is high, while supply remains stubbornly low. Consequently the market price of reliable crystal balls has soared.

Time and timing

In general, only time will give the answers. Yet time itself is also uncertain. No-one can say when the following things will happen, or how long they will take:

UK government notification to European Council President Donald Tusk of the UK’s intention to leave the EU: The UK Prime Minister David Cameron plans to leave it to his successor, who will be appointed on 2 September. The timing of the letter remains within the gift of the UK, but there will be pressure from the EU if it is postponed too long. UK Parliament must first vote by majority that a notification should be sent.

Impact of 2017 elections in France (April) and Germany (September): The leaders of the two biggest EU nations will be at best distracted and at worst unwilling to engage while their own elections are under way.

Article 50 negotiation – terms for the UK’s exit from the EU: Once Donald Tusk receives the UK’s exit letter there is in principle a two year window for the UK and the other EU Member States to negotiate the financial and legal terms of the UK’s exit. This negotiation does not include the nature of their future trade relationship.

Trade relationship with the EU and other countries: The UK civil service will need to employ skilled trade negotiators because the UK has not negotiated a major trade agreement while a member of the EU. Not only will the UK want to negotiate its trading relationship with the EU (and all that entails about the level of access to the single market, potential tariffs, mutual recognition or not of trading standards and regulation) but it will no longer be party to EU trade agreements with other countries. So the UK will have to negotiate its own trading terms (and tariffs, regulation etc) with the likes of China, the US and Japan. To put that timing in context, the EU trade agreement with Canada (excludes services, not as comprehensive as unfettered access to the EU single market) took seven years to negotiate and it is not yet ratified.

EU influence on UK law: Since 1973 in practical terms no EU law has proceeded without the prior agreement of the UK (together with France and Germany). That period of EU influence on UK law will need disentangling and replacement. It will be a monumental exercise at a time when the UK legislative agenda is already full. As well as crystal balls, constitutional and other lawyers will be in short supply.

Affect and effect

Nothing happens in isolation. The UK/EU process and negotiations will have myriad effects, many of which we have not yet identified. The negotiations and the negotiators will be affected by any number of issues which may or may not be currently observable. Here is a non-exhaustive list in no particular order:

the future of the EU: come back smaller but stronger? Fall apart?

migration

conflict on the borders of the EU; relationship with Russia and Turkey

the future of the Eurozone, Greece and other members: no monetary union has ever survived without political and fiscal union; many commentators believe that the Eurozone in its current construct is unsustainable

the UK political environment, UK party leadership, and the next UK general election: what happens if the next election is won by a party that stands on a manifesto of EU membership? Or that party forms part of a coalition government? Might that lead to a second referendum, or a notification to Donald Tusk that the UK wishes to withdraw its notification to withdraw?

the state and performance of the UK, European and global economies

the UK’s National Health Service (NHS), infrastructure projects, and support for other public services: if the UK economy falters that will put pressure on government funding generally; many eyes will be on the next UK budget

UK and EU social environment, social cohesion, integration and openness: Will three million EU residents in the UK feel welcome? And what about two million UK residents in the EU? What sort of country will the UK be in fact and perception? Could that harm the UK’s ability to attract the best people?

the future of the UK: Will the UK stay united? What does the future hold for the island of Ireland; Scotland; Gibraltar; devolution to English regions/cities - could London become a city state?

Uncertainty and opportunity

One thing we do know is that change brings uncertainty but also opportunity. A UK on its own may need help building new national IT infrastructures. The UK tax system might be simplified, for the benefit of corporate and personal taxpayers and the Treasury. Uncertainty might encourage a more diversified UK economy.

But one of the biggest enablers of economic growth is political, fiscal and economic stability, especially for Small and Medium sized Entities (SMEs), tech start-ups, and businesses looking to exploit a proven idea. And stability for both the remaining EU Member States and the UK is subject to a similar supply and demand equation as reliable crystal balls – highly prized but rare.

In ten years' time much of this will be known and we will be getting on with it. In the meantime I am pretty sure that my crystal ball is at least as good as anyone else’s…